“Enter the Dragon” – Is your supply chain ready for the growth in China?
A recent global economic study identified, that according to two of the key indicators for the size of the economy: energy consumption and resources demand, China is now a larger economy than the United States. A startling statistic!
Many businesses have supply chains which now include China, whether as a source or destination for their goods and services. These businesses have felt the impact of this economic growth already. But what of the rest of us? For companies that are not importing from or exporting to China, how is their supply chain performance likely to be affected by this growing economy? Is that performance under threat?
In several recent meetings of our Benchmarking and Improvement Peer Groups, this topic has been discussed at length. The answer is that the effects on regional and global supply chains are growing increasingly in significance. The effect has been apparent through changes in the availability of goods (less available) and the lead times to source goods (growing longer). For example:
- A major utility which conducts significant MRO activities has had to increase planning horizons for major works from 10 weeks to up to 16 months due to competition for materials that are now flowing into China.
- A supply organization has seen prices for goods where they are competing against China jump by as much as 40%.
- An Australian based FMCG manufacturer faced a reduction in capacity due to the lack of availability of shipping which was to bring essential ingredients into Australia.
Consider the implications for your business of facing similar issues. Is your business prepared? Reviewing our database of over 650 companies, answers to the following questions revealed the current state of preparedness.
In answer to the question: Do you have a documented supply chain (logistics or supply) plan that is a sub-set of the corporate plan and that details objectives and performance targets? The results (see below) showed only 55% of companies had supply chain plan that had been updated in the past 12 months. A further 17% had a plan that was either out of date or note linked to corporate objectives. 29% had no plan at all!!
Only 37% of companies have an up-to-date procurement policy and 34% an up-to-date inventory policy. How do you compare?
There was better news when we looked at the level of supplier agreements that were in place. More than 60% of companies had service contracts in place of at least 12 months duration. More than 70% had service level agreements in place for at least part of their supplier base.
Understanding where your business performance is positioned compared to those in the market place is essential to knowing how to compete and where to put the improvement emphasis. The Benchmarking Success database provides a fact based reference for companies wishing to understand their comparative performance.